Mexican stocks drop; Brazilian monthly retail sales fall

LOS ANGELES (MarketWatch) -- Losses among Mexican stocks accelerated Tuesday, with shares of Cemex SA sliding in the wake of the cement maker's plan to sell its Australian operations.

Mexico's IPC index reversed from earlier gains to end 2.7% lower at 24,224, with shares of Cemex
CX, -1.79%
down 6%. The shares stretched their 8.8% drop on Monday after the cement maker said it will sell its operations in Australia to Switzerland's Holcim in a deal valued at $1.6 billion.

Decliners also included Empresas ICA. Shares fell 6.7%, adding to their 3.3% decline in the previous session when the engineering and construction firm registered to sell up to $350 million in new shares.

The proposed sale of Cemex's Australian operations comes as the company has been grappling with a heavy debt load that largely stems from its 2007 purchase of Australia's Rinker. Cemex is now working to refinance roughly $14.5 billion of its debt.

UBS Pactual said Tuesday the proposed sale is "positive news" in part as the $1.6 billion transaction price is equivalent to 40% of its refinancing needs this year, and 10% of its needs in 2009 through 2011.

Cemex has an estimated 2010 funding gap of $2.5 billion and a $6.5 billion gap for 2011, according to Credit Suisse in a note Monday.

UBS Pactual analysts Gordon Lee and Rodrigo Monteiro said in a note that with valuation at about six times EBITDA, the sale is "dilutive to overall valuations" and will result in an increase in the leverage ratio," in the near term.

"As a result, it does not change our view that Cemex remains expensive and that, in the end, some sort of equity raising will be necessary," said UBS, which has a sell rating on Cemex.

Elsewhere, shares of Telefonos de Mexico
TMX, +0.41%
shares lost 0.9%. The fixed-line operator's proposed bond issuance of up to 8 billion pesos were rated A3 and Aaa.mx by Moody's Investors Service. The outlook is stable.

Moody's in a statement said the ratings are based on the company's strong market position in Mexico and strong credit metrics for its ratings category. They also take into account "the negative impact on Telmex's revenue and margins derived from a low level of services diversification and from strong competitive pressures."

Brazil lower; Chilean peso climbs

The Bovespa equity index fell 1.6% to 51,205.78. A sell off in the previous session snapped a three-session winning streak.

Copel
ELP, +0.12%
shares tumbled 6.3% after the electric utility said it won't raise rates this year, citing tough global economic conditions. Separately, the state of Parana, the majority shareholder in Copel, reportedly will not to allow the company to adjust its tariffs this year.

Brazilian statistics agency IBGE said Tuesday that retail sales fell for a second consecutive month. Sales in April declined a seasonally adjusted 0.2% compared with March. Sales on a year-over-year basis rose 6.9%, above the consensus estimate of 6.1%, according to UBS Pactual.

But the March sales figures were revised downward to reflect a monthly decline of 0.5% compared with the previous reading of 0.3%.

The "major revision" suggests domestic demand isn't recovering at the strong pace as indicated from the previous data, said Paulo Mateus, an economist at Barclay's Capital Research in a note to clients.

"Although the economy is indeed recovering and the worst period for economic activity has already passed, in our view, growth remains rather sluggish, and far from the levels observed prior to September last year."

In April, sales of vehicles fell 5.6% and furniture and appliances sales decreased 2%. But supermarket sales for food and beverages rose 0.8%, aided by the shift of the Easter season to April from March a year ago.

Mateus said the sales data support a benign inflation outlook and further monetary easing, and said Barclay's has kept its call for a interest-rate cut of 50 basis points at policymakers' meeting in July. It also backed its forecast for a 1.4% decline in gross domestic product in 2009.

On Monday, the central bank's weekly survey of economists produced a consensus estimate for a 0.55% decline in gross domestic product in 2009. A week ago, the estimate was for a decline of 0.71%.

Chile's IPSA fell 1.4% ahead of an expected interest-rate decision by the central bank late Tuesday, with the rate widely expected to be cut by 50 basis points to 0.75%.

The country's currency, meanwhile, surged 1.9% to 554.60 pesos per U.S. dollar after the government said it plans to repatriate an additional $4 billion from an offshore sovereign wealth fund this year.

Argentina's Merval dropped 3.8%. Trading was closed in Argentina on Monday for a national holiday.

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